Gas prices to surge on Queensland export launch

Brian Robins

Gas prices are forecast to rise steeply in eastern Australia in the wake of the launch of gas exports from Queensland later this year, which will undermine much of the energy source’s competitive position when compared with electricity.

Forecasts included in an application lodged by gas distributor Jemena to the Australian Energy Regulator includes data which points to the steep price rises anticipated as domestic wholesale gas prices rise towards international levels.

Jemena, which is controlled by Chinese and Singapore government entities, has indicated it is willing to trim its charges, which make up to half of the quarterly gas bill, in a bid to limit a possible slide in gas demand as wholesale prices surge.

Projections included in Jemena’s application signal the wholesale gas price will double to $8 a gigajoule between 2014 and 2018. Adding in transportation and other charges, this will push the price to around $10 a gigajoule.

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This is around double the domestic US price for gas of around $US4.50 a gigajoule. The surge in gas produced from so-called unconventional sources such as shale, has pushed down gas prices in the US, resulting in many companies seeking to export surplus production to Europe and Asia.

Reflecting the imminent start to gas exports from eastern Australia, household gas prices in NSW rose 17 per cent from the beginning of July, with concerns that prices will continue to rise over the next few years.

These rises are expected to be mirrored in other states.

As a result, Jemena expects average gas demand per user to decline, although it is hoping to expand its supply network to more users, which may help to offset any decline.

The expiry of long term domestic gas supply contracts held by energy utilities such as AGL over the next two to three years is leaving households exposed to the impact of international gas prices.

This will see gas prices rise an estimated 20 per cent between 2014 and 2018, according to analysis included in the Jemena application, with electricity prices to remain unchanged over this time frame.

At the same time, underlying gas demand will remain soft, with demand from industrial users to weaken, although the main impact here will be the looming closure of the Kurnell oil refinery in Sydney in the coming months.

Every five years, Jemena makes new price applications to the regulator, which includes an outline of its spending plans. In its last application, it was paying 10.4 per cent to borrow money, which has dropped to around 8.7 per cent now, which has given it the flexibility to consider reducing charges, its application noted.